China set to be GM 2nd-largest market

China ops head says shift likely this year-report

CBSMarketWatch

TOKYO (CBS.MW) - The head of General Motors' China operations said that nation is set to overtake the UK and Canada this year as GM's second largest market, according to a published report.

Phil Murtaugh, chief executive of GM's China operations, told a business conference in China that the nation, which was the auto group's fourth largest market last year, will "most likely surpass the UK and Canada to become its second largest in the world" this year, AFX reported over the weekend.

He also said that GM
GM, -0.10%
the world's largest auto maker, will officially launch its Cadillac luxury brand in China at the Beijing auto show on Monday as part of expansion plans announced last November, the report said.

GM will also announce "an expansion of our partnerships", Murtaugh was quoted as saying, without offering further details.

Murtaugh noted that Japan's Toyota
TM, +0.30%
overtook Ford
F, -0.08%
as the second largest car company in the world last year, and said that China was becoming an important market place for General Motors in defending its pole position.

"To remain number one, we must be a leader in China for the long-term," he said.

China last year became the focus of the world auto industry, following booming sales in 2002. Car sales surged 55 percent from the year before last, crossing the 1 million unit mark for the first time. Last year, they jumped over 80 percent to 2.04 million units.

Murtaugh said that passenger car sales this year will overtake those of commercial vehicles for the first time, where just three years twice the amount of commercial vehicles were sold in China than passenger cars.

GM, the second biggest foreign car marker in China with market share of 9.5 percent, said in a March filing that its profit in China last year surged 207 percent to $437 million. It sold 386,710 vehicles last year, up 46.4 percent.

Murtaugh said that the company will be selling "well over" 500,000 Buicks a year by the end of the decade.

Sales of Buicks, made in collaboration with Shanghai Automotive Industry at its flagship joint venture, rose 81.6 percent last year to 201,188 units, the report said.

The explosive growth in China's auto market has led to fears of overcapacity. However, Murtaugh said that there was little evidence that the market leaders are suffering any kind of glut.

Murtaugh noted that China currently has only 15 vehicles for every 1,000 Chinese, compared to the US' one car for every two Americans. By the end of the decade, there will be 50 million middle class households in China in the income bracket able to afford a car purchase.

"We're selling everything that we can produce," he said, noting that the top 15 automakers in China are all running at capacity utilization rates of around 85 percent.

For this reason, Murtaugh ruled out China as a car export manufacturer "for quite some time."

That said, with most of the global leaders represented in China, and engaged on aggressive expansion plans, Murtaugh said that the China market has "set the stage for an unprecendented race for the world's automakers."

"China is without a doubt one of the most competitive automarkets in the world today," he reportedly said.

GM has also had its share of problems in China. A truck and SUV joint venture in Jinbei, one of its six in China, is currently being restructured after years of disappointing sales.

The restructuring of the Jinbei operations, Murtaugh said, is "proof that everybody can make mistakes."

As with many foreign companies here, GM has also been plagued with piracy issues, launching an investigation last summer into the similarities between one of its compact models, and another produced by Chery, a manufacturer based in Anhui province on the eastern seaboard.

Murtaugh said that the Chery investigation has proven frustrating, but reportedly said, "I've been more positive recently than some months ago," without elaborating.

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